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China Guardian 2011 Autumn Auction

China’s art market has become one of the world’s most important in the past decade. Though accounting for only a tenth of the number of global transactions, annual sales of $4.8 billion in 2011 made up 41% of the global total turnover, according to the 2011 Art Market Trends report by Art Price. More than 700 paintings sold above $1 million in China that year, compared with 426 in the U.S. and 377 in the U.K., the second and third largest markets in the world. Three years ago, only one Chinese artist was among the world’s 10 best-selling artists. Last year, six of the 10 spots were taken by Chinese painters.

Wise investment in Chinese collectibles has helped to lift buyers into the ranks of the country's wealthiest people. That group includes Xu Qiming, who appeared at No. 222 on the 2011 Forbes China Rich List with wealth of $750 million. (Click here for the list.) Chinese auction houses like China Guardian are profiting, as are long-time international auction giants Sotheby’s and Christie's. (Sotheby's, whose shares trade on the New York Stock Exchange, plans a sale of 20th-century Chinese art in Hong Kong this coming Oct. 7.)

Hu Yanyan, Vice President of China Guardian

How can you approach the China art market? To learn more, I recently met in New York with Hu Yanyan, vice president of the world’s third-largest auction house, China Guardian of Beijing. She was on a twice-a-year trip to the U.S. to talk to potential participants in their auctions. Here are some tips and approaches I learned from talking to her.

* Aim for the cream-of-the-crop. This requires both in-depth knowledge of Chinese art as well as guts. Not everyone has the courage to make a quick decision about a purchase at an auction, Hu says. Belgian collector of Chinese art Guy Ullens showed such boldness when he paid a total of $2.8 million for a Song Dynasty hand scroll at a China Guardian auction in 2002, a time when art auction prices were generally low and a mere 1 million yuan (about $12,000) would grab a lot of attention. Ullens sold the same item for $8.1 million in 2009.

* Zero in on a particular theme or artist. One exemplary collector: Zhang Zhenyu, who has hundreds of “red-themed” paintings owing to his passionate bond with the Communist Party. In May, he added to that collection by paying $20 million for “Shao Mountain—The Holy Land of Revolution, Old Home of Chairman Mao” by modern master Li Keran.

* Understand supply. Some top artists have inventories of unsold work, and Chinese collectors frequently have hundreds of paintings, both representing potential new supply that can depress prices. On the other hand, when demand is high, supply isn’t such a risk, Hu said. It also helps that some of the biggest Chinese collectors of Chinese art such as billionaires Joseph Lau of Hong Kong and Barry Lam of Taiwan are said to buy items out of interest and not to trade them.

* Beware of imitators. Imitation is a common source of trouble and loss in the market for contemporary Chinese art. Imitators frequently emerge once a style gains a following. Yet the market for those works may fall abruptly, owing to a lack of originality and creativity after a run-up in prices. In Hu’s opinion, the Chinese contemporary artists with the best potential integrate traditional Chinese elements with individuality. One such artist is He Jiaying, who paints modern figures and female nudes with Chinese ink wash.

Caution is especially warranted in the market this year because prices have shown signs of fatigue since late 2011. This is the second time in a decade that the Chinese art market has slowed after a spurt of growth, Hu noted. In the fall of 2005, prices cooled due to rising supply and shams.

Yet Chinese art has been a good long-term investment. In the past ten years, Chinese paintings have enjoyed an average 25% increase in value annually, Hu said. Art transactions are becoming better regulated and managed as houses compete for customers and the Chinese government improves rules.

Against that backdrop, another time-tested strategy about purchasing art that’s hardly unique to China may apply: just go and buy what you enjoy.